The Experts below are selected from a list of 12228 Experts worldwide ranked by ideXlab platform
Robert E Whaley - One of the best experts on this subject based on the ideXlab platform.
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expiration day effects of the all ordinaries share price Index Futures empirical evidence and alternative settlement procedures
Australian Journal of Management, 1997Co-Authors: Hans R Stoll, Robert E WhaleyAbstract:Stock Index Futures were the most successful financial innovation of the 1980s. In spite of their widespread use internationally, they continue to be criticised for causing ‘aberrations’ in the stock market, particularly on expiration days when Futures contracts are cash-settled. This paper examines expiration-day effects of the Sydney Futures Exchange’s All Ordinaries Share Price Index (SPI) Futures and discusses alternative Futures settlement procedures. Our investigations indicate that, while Index stock trading volume is abnormally high near the close on expiration days, price movements are not different from those observed on other days. In other words, the SPI Futures cash settlement at the close appears to have worked well through our sample period. This study also describes and analyses the two basic alternative cash settlement procedures—a single price settlement and an average price settlement.
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Trading Costs and the Relative Rates of Price Discovery in Stock, Futures, and Option Markets
Journal of Futures Markets, 1996Co-Authors: Jeff Fleming, Barbara Ostdiek, Robert E WhaleyAbstract:In frictionless and rational markets, perfect substitutes must have the same price. In markets with trading costs, however, price differences may be as large as the costs of executing the arbitrage between markets. Moreover, if trading costs differ, trading activity will tend to be concentrated in the lowest-cost market. This study tests the differential trading cost hypothesis by examining the rate at which new information is incorporated in stock, Index Futures, and Index option prices. The lead/lag return relations among markets are consistent with their relative trading costs. Prices in the Index derivative markets appear to lead prices in the stock market. At the same time, Index Futures prices tend to lead Index option prices, and the prices of Index calls and Index puts move together. The trading cost hypothesis reconciles the disparity found between the temporal relation in the stock Index/Index derivative markets versus the stock/stock option markets.
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mean reversion of standard poor s 500 Index basis changes arbitrage induced or statistical illusion
Journal of Finance, 1994Co-Authors: Merton H Miller, Jayaram Muthuswamy, Robert E WhaleyAbstract:Mean reversion in stock Index basis changes has been presumed to be driven by the trading activity of stock Index arbitragers. We propose here instead that the observed negative autocorrelation in basis changes is mainly a statistical illusion, arising because many stocks in the Index portfolio trade infrequently. Even without formal arbitrage, reported basis changes would appear negatively autocorrelated as lagging stocks eventually trade and get updated. The implications of this study go beyond Index arbitrage, however. Our analysis suggests that spurious elements may creep in whenever the price-change or return series of two securities or portfolios of securities are differenced. MEAN REVERSION IN STOCK Index basis changes has been amply documented. MacKinlay and Ramaswamy (1988) find significant negative first-order autocorrelation in normalized intraday basis changes of the S&P 500 Index Futures traded on the Chicago Mercantile Exchange (CME). Yadav and Pope (1990) find similar behavior using Financial Times Stock Exchange (FTSE) 100 Index Futures data from the London International Financial Futures Exchange (LIFFE), as does Lim (1990) using Nikkei 225 Index Futures from the Singapore International Monetary Exchange (SIMEX). The trading activity of stock Index arbitragers has been presumed to be driving this elastic realignment of stock Index and Index Futures prices. When the basis widens beyond its theoretical level, arbitragers simultaneously sell Index Futures and buy the Index portfolio, pulling the difference between the Futures and Index
Cheng-yi Shiu - One of the best experts on this subject based on the ideXlab platform.
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Expiration day effects and market manipulation: evidence from Taiwan
Review of Quantitative Finance and Accounting, 2013Co-Authors: Edward Hsing-yi Chow, Chung-wen Hung, Cheng-yi ShiuAbstract:In this study, we analyze the expiration day effects of Index Futures on the cash market in Taiwan, and find that both volatility and trading volume are higher on the final settlement days than on other trading days. We also calculate the volume of open interest for the final settlement of Index Futures contracts relating to different classes of traders, as well as the profits they earn from their open interest positions. We find that proprietary traders exhibit superior performance whereas foreign investors achieve the worst returns. Our empirical results support the view that the expiration day effects in the Taiwan Futures market are at least partially attributable to attempts at ‘marking the close’.
George M Constantinides - One of the best experts on this subject based on the ideXlab platform.
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are options on Index Futures profitable for risk averse investors empirical evidence
Journal of Finance, 2011Co-Authors: George M Constantinides, Michal Czerwonko, Jens Carsten Jackwerth, Stylianos PerrakisAbstract:American options on the S&P 500 Index Futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2009) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while violations of the lower bounds by ask prices are infrequent. In out-of-sample tests of stochastic dominance, the writing of options that violate the upper bound increases the expected utility of any risk-averse investor holding the market and cash, net of transaction costs and bid-ask spreads. The results are economically significant and robust. WE IDENTIFY AMERICAN call and put options on the S&P 500 Index Futures from 1983 to 2006 that violate the stochastic dominance upper bounds of Constantinides and Perrakis (2007) as potentially profitable investment opportunities—“good sell” options. We then consider the utility enhancement that obtains from exploiting such violations by adopting the appropriate trading policy for a generic investor who holds only the market Index and the riskfree asset. In the identification of both the violations and the trading policy, we recognize the potential early exercise of these American options. We allow for realistic trading conditions by using only observable information and by incorporating transaction costs, bid-ask spreads, and trading delays (by waiting one quote before entering the position). The main contribution of our paper is to show that trading policies that exploit these violations lead to out-of-sample portfolio returns that stochastically dominate (in the second order) portfolio returns that do not exploit them. This
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are options on Index Futures profitable for risk averse investors empirical evidence
Social Science Research Network, 2010Co-Authors: George M Constantinides, Michal Czerwonko, Jens Carsten Jackwerth, Stylianos PerrakisAbstract:American options on the S&P 500 Index Futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while violations of the lower bounds by ask prices are infrequent. In out of sample tests of stochastic dominance, the writing of options that violate the upper bound increases the expected utility of any risk averse investor holding the market and cash, net of transaction costs and bid ask spreads. The results are economically significant and robust.
Stylianos Perrakis - One of the best experts on this subject based on the ideXlab platform.
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are options on Index Futures profitable for risk averse investors empirical evidence
Journal of Finance, 2011Co-Authors: George M Constantinides, Michal Czerwonko, Jens Carsten Jackwerth, Stylianos PerrakisAbstract:American options on the S&P 500 Index Futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2009) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while violations of the lower bounds by ask prices are infrequent. In out-of-sample tests of stochastic dominance, the writing of options that violate the upper bound increases the expected utility of any risk-averse investor holding the market and cash, net of transaction costs and bid-ask spreads. The results are economically significant and robust. WE IDENTIFY AMERICAN call and put options on the S&P 500 Index Futures from 1983 to 2006 that violate the stochastic dominance upper bounds of Constantinides and Perrakis (2007) as potentially profitable investment opportunities—“good sell” options. We then consider the utility enhancement that obtains from exploiting such violations by adopting the appropriate trading policy for a generic investor who holds only the market Index and the riskfree asset. In the identification of both the violations and the trading policy, we recognize the potential early exercise of these American options. We allow for realistic trading conditions by using only observable information and by incorporating transaction costs, bid-ask spreads, and trading delays (by waiting one quote before entering the position). The main contribution of our paper is to show that trading policies that exploit these violations lead to out-of-sample portfolio returns that stochastically dominate (in the second order) portfolio returns that do not exploit them. This
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are options on Index Futures profitable for risk averse investors empirical evidence
Social Science Research Network, 2010Co-Authors: George M Constantinides, Michal Czerwonko, Jens Carsten Jackwerth, Stylianos PerrakisAbstract:American options on the S&P 500 Index Futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while violations of the lower bounds by ask prices are infrequent. In out of sample tests of stochastic dominance, the writing of options that violate the upper bound increases the expected utility of any risk averse investor holding the market and cash, net of transaction costs and bid ask spreads. The results are economically significant and robust.
Yiuman Tse - One of the best experts on this subject based on the ideXlab platform.
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intraday volatility in the bond foreign exchange and stock Index Futures markets
Journal of Futures Markets, 2008Co-Authors: Valeria Martinez, Yiuman TseAbstract:Intraday volatility for the Eurodollar, the Euro/dollar foreign exchange rate, and the E‐mini SP interregion volatility (meteor showers) plays a secondary role. The joint impact of liquidity variables such as volume and open interest on volatility is also analyzed. Volume tends to increase volatility, but open interest does not affect it. The results are explained by the type of trading venue. Unlike floor‐based trading systems, in electronic markets open interest does not seem to provide additional information on market liquidity and its relation to volatility beyond any information contributed by volume. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:313– 334, 2008
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intraday volatility in international stock Index Futures markets meteor showers or heat waves
Management Science, 1997Co-Authors: Geoffrey G Booth, Mustafa Chowdhury, Teppo Martikainen, Yiuman TseAbstract:The international transmission of intraday price volatility among the United States, United Kingdom, and Japanese stock Index Futures markets in the period 1988-1994 is investigated in this paper. The empirical results based on extreme-value estimators and vector autoregression indicate the rapid transmission of information between markets. The volatilities of the U.S. and U.K. Futures markets appear to follow a meteor shower rather than a heat wave type of process. This means that these volatilities react to shocks from other markets, i.e., they cannot be described only by their past values. However, the heat wave hypothesis is not rejected for the Japanese market, meaning that the shocks to Japanese volatility are mostly country-specific. A multivariate GARCH model supports the U.K. and Japanese but not the U.S. results.
